Six possible elements of audit quality are highlighted in a report released Tuesday by the Center for Audit Quality (CAQ).
The report describes elements of audit quality that audit firms could consider in refining or developing their own reporting regarding their public company audit practices. The elements are:
- Firm leadership and tone at the top of the audit firm.
- Independence, objectivity, and skepticism.
- Audit process, methodology, and performance.
- Professional development and competency.
- Firm organization and structure.
“The CAQ and its members believe that audit quality reporting can foster greater confidence in the public company audit process by assisting financial statement users, audit committee members, and other stakeholders in understanding how an audit firm’s management and operations support the performance of high-quality audits,” CAQ Executive Director Cindy Fornelli said in a news release.
Fornelli said that, as regulators and standard setters explore ways to increase auditor transparency and update the auditor’s reporting model, the resource is an example of the profession’s efforts to improve communication with key stakeholders regarding firm activities aimed at enhancing audit quality.
The CAQ is affiliated with the AICPA. The report was released on the same day that the PCAOB proposed a new auditor’s reporting model designed to improve the communication auditors provide.
All possible audit quality reporting topics are not included in the CAQ report, titled CAQ Resource: Audit Quality Reporting, which does not suggest that all such topics be reported. Instead, the resource is designed to assist the profession in communicating information about how its system of quality control supports the performance of high-quality audits and any recent enhancements or firm initiatives aimed at enhancing audit quality.
This type of information currently is reported by some audit firms through various mechanisms, including the audit committees of the companies they audit and their own personnel. Several audit firms also currently issue public audit quality reports.
The CAQ is encouraging audit firms to tailor their reporting to describe the specifics of their public company practices and to update their reporting to describe any recent changes they make in policies and practices—or recent investments in audit quality.
The CAQ plans to update the resource to reflect changes in the regulatory and standard-setting environment.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.